The old axiom, “figures don’t lie” is still true. Let’s look at some telling numbers. In 2009, Fixed Income mutual funds received over $350 billion in deposits. In the same year, Equity mutual funds received $14 billion. Needless to say, the majority of investors are trying to be conservative and are looking for safe returns that are better than current money market and certificate of deposit rates.

The big problem is that Fixed Income funds are going to get clobbered when interest rates rise – and they are going to rise. The billions invested in these funds is going to shrink, possibly by 10% or more.

Let’s review some other numbers. -0.95%, less than 1% - that is the average annual return of the S&P 500 index for the past ten years, through 12/31/2009. Remember, that is a negative number. -5.72%, another negative number. That represents the average annual return of the 200 lowest dividend paying companies in the S&P 500 for the same period. +3.2%, that is a positive number, and represents the average annual return for the past ten years of the 200 highest dividend paying companies in the S&P 500.

Companies that pay steady, and hopefully increasing dividends represent the single best investment opportunity, now and in the future. As an example, a representative fund, which holds 75% of the 200 highest dividend paying companies in its portfolio, has averaged +2.81% average annual return over the past ten years.   

Blindly investing in Fixed Income can be costly, and most likely will be. Blindly investing in the overall averages can be just as costly. Investing in well run, established firms, that are willing and able to share their good performance with investors makes the most sense, and will continue to. 

For those concerned with volatility, the best strategy for this investing approach is to dollar cost average, the subject of an upcoming column.

For the best options in investing in dividend payers, please contact us.